Central European Daily

The National Bank of Hungary cut the base rate by 20bp from 3.4 % to 3.2 % in line with prevailing market expectations. The accompanying statement argues that inflation may fluctuate around the inflation target in the medium term. Central bankers believe that although the net real wage growth supports demand, households will raise their consumption only gradually, because of the continuing deleveraging and households´ precaution. Businesses acknowledged rising production cost with only moderate wage increases that help anchor inflation expectations. For the following quarters, the MPC predicts GDP growth gradually accelerating but, at the same time, staying below its potential level. Still high but decreasing unemployment rate is hovering above its long term structural level. As for the international environment, the Council sees it as uncertain, first of all because of non-conventional measures applied by developed markets’ central banks. Although international sentiment has remained supportive in general, the last wave of emerging market capital outflow harmed sentiment on the Hungarian market, where only cautious monetary policy can be followed now.